Method and system for providing retirement income benefits

ABSTRACT

A computerized method of administering an annuity product having a withdrawal feature and a guarantee comprises the steps of establishing an annuity account from which withdrawals can be made, inputting data relating to the annuity account, paying withdrawals to the account owner, and providing a guarantee. Inputted data relating to the account includes a maximum withdrawal rate for a given withdrawal frequency. The guarantee provides that, even if the account value is exhausted before the end of a specified time period, amounts up to the maximum withdrawal will continue to be paid for the specified period, provided that withdrawals before the account value is exhausted do not exceed the maximum rate. The specified time period may be a lifetime period, a period of years or months chosen by the account owner when the account is established, or a period during which withdrawals at least equal a specified percentage of the account value, or a highest account value achieved, as of a specified date. The method may further include the step of establishing a charge to pay for the guarantee.

RELATED APPLICATIONS

This application is a Continuation-in-Part of U.S. patent applicationSer. No. 09/406,290 filed on Sep. 24, 1999, now U.S. Pat. No. 7,089,201,which application is based upon U.S. Provisional Application Ser. No.60/101,883 filed on Sep. 25, 1998; and Ser. No. 60/115,570, filed onJan. 12, 1999, the complete disclosures of which are hereby expresslyincorporated herein by this reference thereto.

FIELD OF THE INVENTION

The present invention relates to financial services and products. Moreparticularly, the present invention relates to a method and system foradministering retirement income benefits. The invention further relatesto a data processing method and system for the efficient administrationof benefits paid from fixed or variable annuity products, includingprovisions for guarantees related to retirement income derived from anddeath benefits associated with fixed or variable annuities. Theinvention also relates to data processing and administrative systemsused to administer withdrawals from mutual funds, particularlysystematic withdrawals from such funds.

BACKGROUND OF THE INVENTION

Annuities typically serve the useful function of providing economicprotection against the risk of longevity, in that an annuitant has theoption of electing a life-contingent retirement income, therebytransferring the risk of outliving one's accumulated assets to aninsurer.

A number of different kinds of annuities are available to meet thediverse needs of different individuals. These include deferred annuitiesand immediate annuities. In a deferred annuity, an individual istypically still in the “accumulation phase” of the annuity, amassingassets intended to sustain him or her during retirement years, when anearned wage from performing work is absent. In an immediate annuity, alump sum of money is applied to purchase a series of retirement incomebenefit payments, with the first payment typically being made about onemonth after purchase, with subsequent benefit payments arriving eachmonth thereafter.

The length of the term of the retirement income benefit payments isdetermined by the annuity benefit option elected by the annuitant. Onetype of annuity benefit option can provide lifetime income for theannuitant, regardless of how long he or she survives. Another typeprovides a similar benefit, but covers two lives, typically theannuitant and spouse.

Various types of additional guarantees can be attached to theselife-contingent annuity benefit options. These include an option thatguarantees the insurer will make at least a minimum number of monthlypayments, typically 120 or 240. Another type of option guarantees thatthe insurer will pay out in benefits at least as much value as wasapplied to purchase the annuity. Increasing the guarantees typically hasthe effect of reducing the amount of the annuity benefit payments.

Non-life-contingent annuity benefit options are also available. Forexample, an annuity benefit that makes monthly payments for a specifiedperiod of time, such as thirty years, and then terminates is available.

Another distinction of the type of annuities available is whether it isclassified as a “fixed annuity” or a “variable annuity.” In a fixedannuity, the insurer bears the investment risks during the accumulationphase. The insurer guarantees a rate of interest applicable to eachannuity deposit. The guarantee applies for a specified period of time,often one year, and is then reset periodically, moving in an amount anda direction that correlates with fixed-income investment yieldsavailable to the insurer in the capital markets.

In a variable annuity, the annuity contract owner bears the investmentrisk during the accumulation phase of the annuity. The annuitant(s)bear(s) the investment risk during the distribution, or payout, phase ofthe variable annuity. The individual(s) (owner and/or annuitant, who canbe the same person) controlling the variable annuity typically have achoice of funds in which they can direct that annuity deposits beinvested. These funds typically each represent one asset class, such aslarge capitalization U.S. common stocks, corporate bonds, money marketinstruments, or international stocks.

In a fixed annuity, the account value during the accumulation phase canonly increase with time. In a variable annuity, the account value duringthe accumulation phase can either increase or decrease with time,depending on the performance of the fund(s) in which the annuitycontract owner has directed that deposits be invested. The hope andexpectation, but not guarantee, is that investments in the riskier assetclasses typically associated with a variable annuity will providelong-term accumulated values superior to those of a fixed annuity. Asannuities are geared toward providing retirement income, there typicallyis a long-term holding period. The table and graph of FIG. 1 illustrateannuity contract values as a function of time for both variable andfixed annuities. The fixed annuity contract of FIG. 1 illustrativelyearns 5% annually.

In a fixed annuity, the dollar amount of each annuity benefit paymentduring the distribution phase is known with certainty at the time theaccount value is applied to the purchase of an annuity benefit option.The act of purchasing an annuity benefit is often referred to as“annuitization.” Fixed annuity benefit payments are typically levelforever, such as $1,000 per month, or increase by a specifiedpercentage, such as $1,000 per month, increasing by 3% each year.However, fixed annuity benefit payments are definitely determinable asto dollar amount at the point where the annuity contract owner electsthe annuity benefit option from among his or her choices.

In a variable annuity, the dollar amount of each annuity benefit paymentduring the distribution phase is not known with certainty at the timethe account value is applied to the purchase of an annuity benefitoption. Rather, the annuitant(s) typically receive(s) the value of aspecified number of annuity units each month. For example, if theannuitant is entitled to the value of 500 annuity units per month andthe annuity unit value on the valuation date that determines theannuitant's benefit is $2.00, the annuitant receives an annuity benefitpayment of $1,000 that month. If, on the next succeeding valuation datethat determines the annuitant's benefit payment the annuity unit valueis $2.05, the annuitant receives an annuity benefit payment of $1,025that month. If the annuity unit value on the subsequent valuation dateis $1.95, the annuitant receives $975 that month.

In contrast to fixed annuity benefit payments, variable annuity benefitpayments are not definitely determinable as to dollar amount at thepoint where the annuity contract owner elects the annuity benefit optionfrom among his or her choices. Variable annuity benefit payments aredefinitely determinable at the time of the annuity option election as tothe number of annuity units that, when applied to unit value, willdetermine the amount of the benefit payment on each future payment date.

For variable annuities, “accumulation units” are the measure of valueduring the accumulation phase. Each specific fund or “subaccount”, suchas a domestic common stock fund, has an accumulation unit value thatincreases daily by realized and unrealized capital appreciation,dividends, and interest, and that decreases each day by realized andunrealized capital losses, taxes, and fees. The worth of a variableannuity contract owner's account is the number of accumulation unitsowned in each fund multiplied by the accumulation unit value of eachfund as of the most recent valuation date (typically daily).

For variable annuities, “annuity units” are the measure of value duringthe distribution phase. “Annuity units” work very much like accumulationunits, with one exception. Annuity units have built into them an“assumed interest rate (AIR)”—such as 3%, 4%, or 5%—at which a fund isassumed to grow annually in value. Thus, if a fund with a 5% AIRactually grew at 5% during a year, the annuity unit value for that fundwould remain unchanged. To the extent the fund performance exceeds 5%AIR, annuity unit value increases. To the extent fund performance fallsshort of 5% AIR, annuity unit value decreases. Since the monthly benefitpayment to the annuitant is the number of annuity units payable timesthe annuity unit value, fund performance in excess of the AIR causes themonthly annuity benefit payments to increase. Fund performance less thanthe AIR causes the monthly annuity benefit payments to decrease.

The table and graph of FIG. 2 illustrate the growth of accumulation unitvalue and annuity unit value, assuming a 9% gross investment return anda 5% AIR in the annuity unit value, for 15 contract years.

Variable annuity benefit options of sufficiently long duration havehistorically provided an inflation hedge to retirees superior to thatavailable under fixed annuities.

While annuitization guarantees lifetime income, the contract holderloses liquidity (and, depending on the type of annuity, some or all ofthe death benefit implied by full liquidity). During the accumulationphase, the contract holder has full access to the account value. Afterannuitization, the contract holder cannot withdraw account value inexcess of that provided in monthly payments, and the death benefitavailable is either zero or limited in some way (e.g. paid only as acontinuation of payments during a predefined period). Because of thisloss of liquidity and reduced (or non-existent) death benefit, manycontract holders wanting periodic income choose not to annuitize.Instead, they make “systematic withdrawals” from their annuity whilemaintaining it in its active, or accumulation, phase.

Systematic withdrawal programs from active, unannuitized deferredannuity contracts are an alternative mechanism (i.e., an alternative toannuitization) for distributing retirement income to contract holders.For purposes of this specification, the term “systematic withdrawalprogram” means any program characterized by periodic payments (which mayor may nor be predefined as to method of determining the amount of eachpayment) where such payments are made from an investment account (whichis referred to here as an “account value”). While the term “systematicwithdrawal program” may have been, or may be, used to describepre-existing or future programs in other contexts within the financialservices industry, it is not the intent of the inventors to be limitedin any way by such uses.

While systematic withdrawal programs provide full liquidity, thatliquidity requires some tradeoffs. For example, if withdrawals are setat a specified dollar level, then these distributions can fully depletethe account value. In other words, the contract holder can outlive theretirement income provided by this method of distribution.Alternatively, if withdrawals are set as a percent of account value,then the period of distribution may be extended indefinitely, but ameaningful level of monthly retirement income may not be achieved. Forexample, if the percentage chosen is too high, the bulk of the accountvalue will be distributed in the early years, leaving a much smalleraccount value base against which the same percentage will be applied,resulting in inconsequential monthly retirement income payments.Systematic withdrawal programs may also be applied to mutual funds, andother similar investment vehicles, which aside from differences intaxation and asset charges, are very similar to the accumulation phaseof variable annuities.

SUMMARY OF THE INVENTION

One aspect of the present invention relates to distributions associatedwith withdrawal programs, including systematic withdrawal programs. Morespecifically, this aspect of the invention provides a method foradministering a systematic withdrawal program in which the distributionprogram calls for a percentage withdrawal, the dollar amount of which isallowed to vary as the account value varies due to withdrawals, fees andexpenses, and appreciation.

One aspect of the present invention provides an income benefit programthat is superior to annuitization and systematic withdrawal programs(whether from deferred annuities, mutual funds, or any other similarinvestment program) by joining features of these two programs seamlesslyso as to provide lifetime income benefit programs which maintainliquidity for the contract holder for as many years as the contractholder chooses. Upon commencement of the program, the contract holderselects a “liquidity period”, defined as the number of years duringwhich full liquidity will be maintained. During the liquidity period, anaccount value will be maintained. This account value will be creditedwith investment performance and debited with income and other payments.

For example, a contract holder, age 65, may select a liquidity period of20 years. Using an assumed interest rate (AIR) and other factors, aninitial payment will be determined. The amount of this payment willchange from period to period based on the same formula used indetermining payment changes under a typical variable immediate annuity,or annuitization under a variable deferred annuity. At the end of theliquidity period, if the contract holder wants payments to continue onthis basis with a lifetime income guarantee, then liquidity is given upand the account value is no longer available as a death benefit. Theexchange of account value liquidity for a lifetime income guarantee maybe optional at or before the end of the liquidity period. The liquidityperiod may be changed at any time, or the contract holder may alsocontinue the program on some other basis, or may elect to surrender thecontract for its account value. For mutual fund programs, the assetsremaining in the mutual fund at the end of the liquidity period may, atthe owner's option, be transferred to an immediate variable annuity tocomplete the program.

This aspect of the invention provides an account value that converts atthe end of the liquidity period to a lifetime income benefit. The formof lifetime income benefit is assumed here to be a life annuity, butother forms of annuities might also be made available (for example, a“life with 10 year certain” annuity). Essentially, the value remainingin the account at the end of the liquidity period is used to purchase alife annuity (of whatever form) that continues payments for the life ofthe annuitant. The program blends payments both before and after theliquidity period in a seamless way. In the case where the amount of eachpayment is guaranteed, this guarantee applies both during and followingthe liquidity period. In the case where each payment is variable and isdirectly related to investment performance, the method for determiningthe amount of each payment, both during and following the liquidityperiod, is the same method as that normally used to determine variableannuity payments. This invention involves a unique administrative systemthat, among other things, customizes the liquidity period and the levelof withdrawal to the particular owner.

This aspect of the present invention differs in several ways fromvariable annuitizations that allow commutation of future payments, andwhich therefore provide some degree of “liquidity”. First, this programcan apply to the accumulation period of the deferred annuity and, thus,would not require actual annuitization. Second, commutation of futurepayments typically requires demonstration of good health. Third,commutation may provide for less surrender value than the presentinvention provides, due to additional loads or charges applied at thetime of commutation. Fourth, during its liquidity period, the presentinvention utilizes a “retrospective,” as opposed to a “prospective,”approach in determining contract value while commutation programsutilize a prospective approach. Under a retrospective approach, anaccount value is maintained by crediting the account value withinvestment performance and debiting the account value with incomepayments. Under a prospective approach, an account value is notmaintained. Instead, the insurance company holds a reserve equal to thepresent value of future benefits.

Since, in at least certain embodiments of the present invention, initialand subsequent payments are higher with shorter liquidity periods,contract holders may decide for themselves the appropriate length of theliquidity period. Some may elect very short periods, such as five years.Others may elect very long periods, in effect maintaining completeaccess to their account values for what will likely be the entirety oftheir lives. Even in the latter instance, contract holders enjoyadvantages over conventional systematic withdrawal programs. Inparticular, the initial payment anticipates returning some portion ofprincipal over the contract holder's lifetime (the remaining portionbeing returned at death), while still guaranteeing that payments will bemade regardless of how long the contract holder lives. Changes inpayments from period to period are governed by the same formula as isused for life annuities and resulting payments are guaranteed for life.

Certain embodiments of the present invention provide a data processingmethod and apparatus for the determination and administration of incomebenefit payments that derive from the seamless combination of systematicwithdrawals and a life annuity, as indicated above, and as will bedescribed more fully below.

In one particular embodiment, the invention provides a computerizedmethod for administering a benefit plan having a feature that providessystematic withdrawals during a liquidity period and a subsequent streamof annuity payments to be paid to the owner under the plan if theannuitant is living when the systematic payments cease. This methodincludes the step of storing data relating to the benefit plan,including data relating to at least one of an account value, an assumedinvestment rate, systematic and annuity payments, the liquidity period,an annuity period, and an annuity payout option. Then, during theliquidity period, the method includes the steps of determining a specialannuity factor, determining an amount of an initial payment, and payingsaid amount to the owner, periodically determining the account value,periodically determining an amount of a current payment, monitoring theaccount value for unscheduled payments made under the contract andmaking corresponding adjustments to future payments, and periodicallypaying the current payment to the owner. The method further includes thestep of determining the account value to be annuitized at the end of theliquidity period. Then, during the annuity period, the method includesthe steps of determining an amount of an initial annuity payment, andpaying said amount to the owner, periodically determining an amount of acurrent annuity payment, and periodically paying the current annuitypayment to the owner.

In this method, the step of determining the special annuity factorduring the liquidity period includes calculating the special annuityfactor using the following formula:

${{Special}\mspace{14mu}{Annuity}\mspace{14mu}{Factor}} = {\left\lbrack {\sum\limits_{t = 0}^{n - 1}v^{t}} \right\rbrack + {\left\lbrack {v^{n}x{\sum\limits_{s = 0}^{\omega}{v^{s}x_{s}p_{x + n}}}} \right\rbrack\left( {1 + L} \right)}}$

-   -   Where:

v = 1/(1 + AIR) AIR = assumed investment rate for variable annuities orguaranteed investment rate for fixed annuities n = number of years inthe liquidity period Σ v^(t) = present value, discounting for interestonly, of $1 paid annually from t = 0 to t = n − 1 v^(n) = present value,discounting for interest only, of $1 paid at t = n Σ v^(s) x_(s)p_(x+n)= present value, discounting for interest and mortality, of $1 paidannually from s = 0 to the end of the mortality table L = expense load(positive or negative).

The initial payment is calculated at issue using the following formula:Payment_(o)=Net Account Value_(o)/Special Annuity Factor

Where:

-   -   Payment_(o)=initial payment    -   Net Account Value_(o)=initial account value, net of any initial        charge for benefit guarantees    -   Special Annuity Factor=special annuity factor calculated at        issue.

Payments made subsequent to the initial payment are determined by thefollowing formula:Payment_(t+1)=Payment_(t)×[(1+i)/(1+AIR)]

Where:

-   -   Payment_(t+1)=payment made at time t+1    -   Payment_(t)=payment made at time t    -   i=net fund performance or interest credited during period t to        t+1, net of any contract charges    -   AIR=assumed investment rate for variable annuities or guaranteed        interest rate for fixed annuities.

The account value during the liquidity period is determined by thefollowing formula:Account Value_(t+1)=(Account Value_(t)−Payment_(t))×(1+i)

Where:

-   -   Payment_(t)=payment made at time t    -   Account Value_(t+1)=account value at time t+1    -   Account Value_(t)=account value at time t    -   i=net fund performance or interest credited during period t to        t+1, net of any contract charges.

The step of making adjustments to future payments to account forunscheduled payments during the liquidity period in the above methodincludes the steps of re-determining the account value as of the timethe next systematic payment is due, and determining the next systematicpayment as if it was an initial payment based on the re-determinedaccount value and the time remaining in the liquidity period.

In the embodiment described above, the initial annuity payment iscalculated using the following formula:Annuity Payment_(n)=Account Value_(n) /AF _(n)

Where:

-   -   Annuity Payment_(n)=initial annuity payment made at time n    -   Account Value_(n)=account value at time n    -   AF_(n)=attained age annuity factor at time n.

An alternative, but equivalent, manner of calculating the initialannuity payment uses the following formula:Annuity Payment_(n)=Payment_(n−1)×[(1+i)/(1+AIR)]

Where:

-   -   Annuity Payment_(n)=initial annuity payment made at time n    -   Payment_(n−1)=final payment made during the liquidity period    -   i=net fund performance or interest credited during period n−1 to        n, minus any contract charges    -   AIR=assumed investment rate for variable annuities or guaranteed        interest rate for fixed annuities.

The equivalence of this method with the alternative is demonstrative ofa “seamless” transition from systematic withdrawals to life annuitypayments.

Annuity payments made subsequent to the initial annuity payment aredetermined by the following formula:Annuity Payment_(t+1)=Annuity Payment_(t)×[(1+i)/(1+AIR)]

Where:

-   -   Annuity Payment_(t+1)=annuity payment paid at time t+1    -   Annuity Payment_(t)=annuity payment paid at time t    -   i=net fund performance or interest credited during period t to        t+1, minus any contract charges    -   AIR=assumed investment rate for variable annuities or guaranteed        interest rate for fixed annuities.

The above-described method may be used with either a fixed or variableannuity plan. The method may be used when the benefit plan following theliquidity period is a straight life annuity benefit plan, or a lifeannuity benefit plan having either a death benefit or a surrenderbenefit. In one embodiment, this annuity has a surrender benefit ordeath benefit dependent upon the present value of specified futurebenefits.

The subject method includes the step of determining a cost of providingthe annuity at the end of the liquidity period. This embodiment mayfurther include the step of deducting the cost from the account value atthe time of annuitization.

One embodiment of the subject method includes the step of discountingthe annuity payments in an amount which is related to the cost ofannuitization. This embodiment may further comprise the step ofdeducting a charge from the systematic payments during the liquidityperiod to offset the cost of annuitization.

The invention described is intended primarily to apply to variableannuities, mutual funds and similar investment programs. Nonetheless,the invention can also be applied to fixed annuities.

Other goals, advantages and novel features of the present invention willbecome apparent from the following detailed description of the inventionwhen considered in conjunction with the accompanying drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a table and graph illustrating annuity contract values as afunction of time for both variable and fixed annuities.

FIG. 2 shows a table and graph illustrating the growth of accumulationunit values and annuity unit values over a 15 year term.

FIG. 3 shows a graph illustrating variable payments made during andafter a liquidity period, in accordance with one aspect of the presentinvention.

FIG. 4 shows a graph illustrating the cash surrender value and deathbenefits in affect before and after annuitization for a program of thetype illustrated in FIG. 3.

FIG. 5 shows a flow chart illustrating the data collection and entrysteps of the computerized method of the present invention.

FIG. 6 shows a flow chart illustrating a portion of a computerizedmethod which utilizes a retrospective approach to annuity benefitcalculation.

FIG. 7 shows a flow chart which is a continuation of the flow chart ofFIG. 6.

FIG. 8 shows a flow chart illustrating a computerized method whichprovides for scheduled and unscheduled withdrawals in an investmentprogram, in accordance with one aspect of the present invention.

FIG. 9 shows a table illustrating the operation of a systematicwithdrawal program, in accordance with one aspect of the presentinvention.

DETAILED DESCRIPTION OF THE INVENTION

The present invention contrasts with normal annuitization in two ways.First, the annuitization of the contract (or, in the case of a mutualfund, purchase of the annuity) is postponed until the end of theliquidity period (which may be the end of the mortality table, if soelected). Rather, a series of income benefit payments specified by theprogram is made from an account value. This means that, upon death ofthe contract owner during the liquidity period, the account value ispaid to the beneficiary. This contrasts with distribution methodsassociated with true annuitizations, where the form of the annuitypayout option chosen governs whether any residual value remains for asecondary annuitant or beneficiary. For example, under a variableannuity contract annuitized under a single life annuity option with nocertain period or other refund option, the insurer's obligation to theannuitant ceases upon death. No further payments, “account value,” orany other form of residual value flows to the beneficiary. Even if theannuitization option includes a period certain (for example, life with a10-year period certain), and even though the death of the annuitantduring the certain period does not prevent the balance of the certainperiod payments from being made, no “account value” is available as adeath benefit and no further benefits are paid after the certain periodhas ended.

Second, because the annuitization of the contract (or mutual fund) ispostponed, a lump sum or partial account value withdrawal capabilitystill resides with the owner(s) during the liquidity period.Additionally, the contract holder may elect to withdraw less than theallowable withdrawal amount; payments under a variable annuity payout donot offer this flexibility.

Under this approach (which applies equally well to joint ownership as tosingle ownership), the contract holder chooses a period during whichincome benefit payments will be withdrawn from the account value andduring which full account value liquidity is maintained. At the end ofthis liquidity period, the remaining account value is annuitizedaccording to standard annuity payout options. The insurance companydetermines the amount of the initial benefit payment, based on thelength of the liquidity period chosen, the age of the contract holder,and other factors. Using the assumed interest rate (AIR), the companycalculates the initial withdrawal so that, if the AIR is realized in agiven period, the benefit payment amount will not change. FIG. 3illustrates variable payments made during and after the liquidity periodin a program of this type. FIG. 4 illustrates the cash surrender valueand death benefits before and after annuitization for a program of thistype.

The amount of the initial benefit payment can be determined by a methodthat begins with calculating a special annuity factor equal to thepresent value (using the AIR) of an annual payment of $1.00 during thechosen liquidity period, plus the present value (again using the AIR) ofannual payments of $1.00 after the end of the liquidity period, suchpayments made according to the desired annuity option. The initialpayment is then calculated by dividing the available account value atthe beginning of the program by the special annuity factor describedabove.

Subsequent benefit payments are adjusted up or down exactly as paymentsare adjusted under normal annuitization.

For example, assuming an n-year liquidity period and a life only annuityat the end of that period, the special annuity factor is calculated asfollows:Special annuity factor=Σv ^(t) +Σv ^(t) _(t−n) p _(x+n)

where:

v=1/(1+AIR)

n=number of years in the liquidity period

Σv^(t)=the present value of payments from t=0 to t=n−1

Σv^(t) _(t−n)p_(x+n)=the present value of payments from t=n to the endof the mortality table, where each payment depends on the probabilitythat the owner lives from duration n to duration t.

Under this method, the liquidity period can be extended to the end ofthe mortality table (for example, age 115); in such case, if the ownerlives until that age, a life annuity is still guaranteed, but by thatage the financial risk to the insurer is de minimis.

The contract holder may make additional deposits and may makewithdrawals in excess of the designated withdrawal amount, provided theend of the liquidity period has not yet been reached. In such instances,the benefit payment program must be adjusted. Adjustments are made byincreasing or decreasing the current payment amount by the sameproportion as the amount of the new transaction (deposit or excesswithdrawal) bears to the account value just prior to the transaction.For example, if the current account value is $50,000 and the currentpayment amount is $1,500, an additional deposit of $5,000 increases theaccount value by 10% and the payment amount is therefore increased by10%. In the same example, an unscheduled payment of $5,000 (which istherefore an excess withdrawal of $5,000) reduces the account value by10% and the current payment amount reduces by 10%. In the adjustments,the investment return for the period from the most recent scheduledpayment to the date of the new transaction may be reflected in theadjustment.

This invention also encompasses the integration of this program withdeath benefit guarantees. For example, such death benefit guarantees maypromise that the contract owner will have returned to him or her aspecified percentage of either the initial deposit, the “high-watermark” account value as of any subsequent policy anniversary, depositsaccumulated at a specified interest rate or rates, or other definitionsof value, with prorata or other adjustments made for payment amountsreceived prior to death.

In addition to distribution methods associated with true annuitizations,distributions associated withdrawal programs—including systematicwithdrawal programs—from active (unannuitized) deferred annuitycontracts are also encompassed by this invention.

For example, for a given attained age(s) and, where allowed, gender(s),an insurer may permit withdrawals from an active (unannuitized) deferredannuity contract. Under such a program, if these withdrawals do notexceed a predetermined percentage established by the insurer for a givenwithdrawal frequency, the insurer guarantees that withdrawals under thisprogram will last for the period prescribed, including a lifetimeperiod.

As a hypothetical example, if a male age 60 withdraws 4.4% of theinitial account value each year, such withdrawals are guaranteed to lasta lifetime. (Initial account value is that account value at the time asystematic withdrawal program, inclusive of this guaranteed minimumbenefit payment option, commences.) There is an explicit increment tothe asset charge for those customers who opt to purchase this benefit.

This distribution program contrasts with those shown earlier in twomajor ways. First, the variable annuity contract is never “annuitized.”Rather, a series of partial withdrawals is made from an active(unannuitized) deferred variable annuity contract. This means that, upondeath of the contract owner, the account value is paid to thebeneficiary. This contrasts with distribution methods associated withtrue annuitizations, where the form of the annuity payout option chosendetermines whether any residual value remains for a secondary annuitantor beneficiary. For example, under a variable annuity contractannuitized under a single life annuity option with no certain period orother refund option, the insurer's obligation to the annuitant ceasesupon death. No further payments, “account value,” or any other form ofresidual value flows to the beneficiary.

Second, because the variable annuity contract is never annuitized underthis distribution program, a lump sum or partial account valuewithdrawal capability still resides with the variable deferred annuitycontract owner(s). However, withdrawals in excess of the amounts statedby the insurer to keep the guaranteed payout program in place may alteror may terminate the program.

One variant of this distribution program calls for the percentagewithdrawal allowed to be not just of the initial account value, butrather of the highest account value achieved on any policy anniversaryfollowing inception of the program, such account value necessarilyrecognizing all withdrawals and fees as well as appreciation.

For example, suppose a male age 60 may withdraw 4.4% of the initialaccount value each year under this program and be guaranteed a lifetimeincome of that amount. Suppose the initial account value at inception ofthis program is $100,000. The contract owner withdraws $4,400, themaximum permitted. Favorable fund performance causes the account valueto increase from $100,000−$4,400=$95,600 to $110,000 as of the contractowner's next policy anniversary when he has attained age 61. The accountvalue against which the 4.4% withdrawal applies is then re-establishedas the “high-water mark” account value on any policy anniversary. Thus,he may now withdraw up to 4.4% of $110,000, or $4,840, each year andhave the lifetime income guarantee program remain in place. If theaccount value subsequently decreases at all—even to zero—the $4,840 isguaranteed to be paid for life.

The table of FIG. 9 illustrates the operation of this aspect of theinvention. In the illustration of FIG. 9, the initial account value is$100,000, the withdrawal guarantee is 7.5% of the highest account valueattained, the investment return is assumed to be as illustrated, and theterm is 15 years.

In addition to guaranteed income for specified periods includinglifetime periods under systematic withdrawal programs, this inventionalso encompasses the integration of such income guarantees with deathbenefit guarantees. For example, such death benefit guarantees maypromise that the contract owner will have returned to him or her aspecified percentage (e.g., 0%-100%, inclusive) of either the initialaccount value or the “high-water mark” account value as of anysubsequent policy anniversary.

Under this approach, the initial withdrawal amount is adjusted in thesame way variable annuity benefit payments subsequent to the initialpayment are adjusted (see above), substituting “withdrawal” for“benefit” in the formulas. Such adjustment occurs during the liquidityperiod (chosen by the contract holder at the beginning of the program)and continues on into the life annuity period to adjust the variablepayments under that phase of the program also.

Since the first adjustments are made during the liquidity period, thedeferred annuity account value (or mutual fund account value) must bemaintained as usual for deferred annuities (or mutual funds), withspecial adaptation for additional deposits and for withdrawals in excessof the calculated withdrawal amount. Assuming no additional deposits andno excess withdrawals, the administration of the account value proceedsas follows:Account Value_(t+1)=(Account Value_(t)−Withdrawal_(t))×(1+i)

where:

Account Value_(t+1)=Account value at time t+1

Account Value_(t)=Account value at time t

Withdrawal_(t)=dollar amount of variable withdrawal benefit at time t

-   -   i=actual fund performance during period t to t+1 (as a %).        Description of the Flow Charts

FIG. 5 is a flow chart which illustrates a portion of a computerizedmethod of practicing the present invention. More particularly, FIG. 5 isan illustrative embodiment of the steps which are taken to collect datawhich is used in the remainder of the process, as described in moredetail below. For a new annuity, the data collected through theindividual steps illustrated in FIG. 5 may be entered manually at acomputer terminal or equivalent input device, or electronically, or inany other manner which is customary at present or in the future. For anexisting annuity, the data will generally be retrieved from an existingcontract master record, or other file.

The process may be initiated (block 10) either manually at a workstation, or automatically in a batch cycle. In either case, a main menuis displayed (block 12) or provided, offering a number of possibleoperations. A choice may be entered by an operator or emulator (block14). The choice may be validated as indicated in FIG. 5 (block 16).

After a valid choice has been selected, the system determines whetherthe subject annuity is a new annuity or an existing annuity (block 18).For a new annuity, the process proceeds to display a new annuity inputscreen (block 20). This screen contains entry fields for items such as:information regarding the annuitant, owner and/or beneficiary;information regarding type of annuity chosen, including relevant datesand amounts; information on interest and mortality guarantees to be usedin the subsequent calculations; and other related information. This datais entered (block 22) and checked for validity and completeness (block24). If the data is valid and complete, a master record is created(block 26). The fields of the master record are populated with the dataentered in step 22. The new master record is then displayed (block 28)for visual checking by an operator. If the data is deemed to besatisfactory (block 30), the master record is stored in a master recordfile (block 32). If the data is not satisfactory, the process repeats asindicated in FIG. 5.

Referring again to step 18, if the system determines that an existingannuity is to be dealt with, processing proceeds to display the existingannuity input screen (block 34). This screen contains entry fields foritems such as: contract number; annuitant identification; and otheritems associated with the existing annuity contract. New data is entered(block 36) via the existing annuity input screen, and such new data ischecked to determine validity and completeness (block 38). The masterrecord associated with the existing annuity contract is retrieved (block40) and displayed (block 42) for viewing by an operator. If and when themaster record, as updated by the newly inputted data, is satisfactory,processing proceeds as indicated in FIG. 5.

FIG. 6 illustrates the next step in the overall process of the presentinvention. That step is calculation of an annuity benefit usinginformation from the master record, as created or updated in the processof FIG. 5 and other retrieved data. More particularly, the flow chartsof FIGS. 6 and 7 illustrate one embodiment of a computer-based processfor calculating an annuity benefit in accordance with a retrospectiveapproach to benefit calculation.

The first step in the flow chart of FIG. 6 is to retrieve additionaldata relating to annuity factors (block 46), survivor factors (block 48)and annuity unit values (block 50). These data are typically stored infiles used for other purposes, although duplicate or dedicated purposefiles may be created to hold such information for use in the calculationprocess. The process of FIG. 6 then checks to determine whether theparticular calculation at hand involves a new or existing annuity (block52). If the calculation involves a new annuity, processing proceeds bydeducting the premium load (if any) from the amount of money availablefor purchasing the annuity (block 54). For an existing annuity, theprocess checks for the end of the liquidity period (block 56). If theliquidity period has come to an end, the account value is set to 0(block 64) and a paid up immediate annuity is purchased (block 66). Ifthe liquidity period continues, the system calculates the investmentreturn (i) for the recent period using annuity unit values (block 58).The results of step 58 are then used to update the account value (block60).

Following step 54, for new annuities, or step 60, in the case ofexisting annuities, the benefit is determined. This calculation uses thenet money available for purchasing the annuity, the appropriate annuityfactor for the age, sex and type of annuity, and the appropriate annuityunit value to determine the benefit. The benefit may also be adjustedaccording to other terms of the contract (e.g., multiplied by 0.8, orother factor) (block 62).

Processing in accordance with the retrospective approach continues asillustrated by the flow chart of FIG. 7. Generally, the flow chart ofFIG. 7 illustrates the steps of using the benefit amount determined inthe process of FIG. 6 to update files and make adjustments needed forthe benefit calculations to be performed on the next benefit paymentdate. Also illustrated in FIG. 7 are steps relating to the generation ofreports and updates for the benefit of both the annuity payer and theannuitant.

With reference to FIG. 7, the benefit determined in step 62 is used toreduce the Account Value by the amount of the benefit (block 70). Thesystem then checks to see if the Account Value is less than zero (block72). If so, the Account Value is then set to equal zero (block 74). Ineither event, the system then proceeds to update the master record(block 76). All appropriate data and information entered or affected bythe processing to this point are captured on the master record. Thisdata would include such items as the amount of the benefit determined instep 62, the new account value or remaining units, payment date(s) ofbenefit(s), the next benefit due date, and similar information.Following the updating of the master record (and any other relatedfiles), the system generates reports (block 78). Reports may begenerated for internal use, as well as for the annuitant. Representativeusages are illustrated in FIG. 7. These include: accounting file (block80) for use in preparing process and accounting records (block 82); avaluation file (block 84) for use in establishing reserves (block 86); apayment center file (block 88) for use in preparing benefit checks andreports to annuitants (block 90); a customer service file (block 92) foruse in preparing screens for the use of customer service personnel inresponding to inquiries from annuitants and related entities; and otherfiles (block 96) for use in any other activities (block 98) which mightbe useful to the annuity payer or annuitant.

FIG. 8 illustrates an alternative embodiment of an annuity-basedretirement program constructed in accordance with the present invention.As indicated by the continuation letter “A” at the top of the flow chartof FIG. 8, this embodiment shares the data collection steps illustratedin FIG. 5 in common with the preceding embodiments. Similar informationregarding the annuitant and account is collected in accordance with thesteps described in connection with FIG. 5. Additional informationspecific to the present embodiment, such as length of the liquidityperiod, is also entered in accordance with the steps described inconnection with FIG. 5.

With reference to FIG. 8, the process continues by retrieving additionaldata (block 158), such as annuity unit values, annuity factors, andsurvivor factors. These values are typically stored in files which maybe used for other purposes, as well.

Following the data retrieval step, the system determines whether aparticular event is a scheduled withdrawal (block 160). If yes, thesystem then checks to determine if the withdrawal program is a newprogram (block 162). If yes, the system proceeds to calculate theinitial withdrawal amount (block 164) based upon the data inputted forthe new account. If the account is not a new program, the systemcalculates the actual net investment return, i, (block 166). The systemthen calculates the new withdrawal amount (block 168), using the actualnet investment return and the AIR.

If the subject event is not a scheduled withdrawal, the system checks todetermine whether the event is a premium payment or deposit (i.e., is anegative withdrawal) (block 170). If yes, the system calculates thecurrent account value (block 172), calculates the increase factor (block174) using the formulas described below, and increases the scheduledwithdrawal amounts to be used in future calculations (block 176).

If the subject event is not a scheduled withdrawal and is not a premiumpayment or deposit, the system checks to confirm that it is anunscheduled withdrawal (block 178). If the system indicates that this isnot the case, an error message is produced (block 180) and the processhalts. If the system confirms that the event is an unscheduledwithdrawal, processing proceeds with calculation of the current accountvalue (block 182), calculation of the decrease factor (block 184), asdescribed previously, and decrease of the scheduled withdrawal amount tobe used in the future (block 186).

As indicated in the flow chart of FIG. 15, after completion of theappropriate steps described above, the system processes the transactionamount (i.e., the amount of the scheduled withdrawal, premium payment,deposit, or unscheduled withdrawal) (block 188). The master record isthen updated (block 190). As indicated by the connecting letter “E”, thesystem then updates the files and generates reports in the same manneras described in connection with the previously discussed embodiments ofthe invention.

From the preceding description of the preferred embodiments, it isevident that the objectives of the invention are attained. Although theinvention has been described and illustrated in detail, it is to beclearly understood that the same is intended by way of illustration andexample only and is not to be taken by way of limitation. The spirit andscope of the invention are to be limited only by the terms of theappended claims.

1. A computerized method of administering an annuity product having awithdrawal feature and a guarantee comprising the steps of: a)establishing an annuity account having an owner and a unitized accountvalue the investment performance of which accrues to the benefit of theaccount owner and from which withdrawals can be made; b) inputting datarelating to the annuity account, including data relating to at least oneof the account owner, the account value, and a specified withdrawal ratefor a given withdrawal frequency; c) allowing the account owner to makewithdrawals from the annuity account; wherein if the amount of thewithdrawal is less than or equal to the specified withdrawal rate thereis a guarantee that, even if the entire account value is exhaustedbefore the end of a specified time period, amounts up to the specifiedwithdrawal rate will continue to be paid for at least said specifiedtime period; wherein said specified time period is determined when theaccount is established to be at least one of a lifetime period, a periodof a certain number of months or years, and a period required forcumulative withdrawals to at least equal a specified percentage of oneof the account value as of a specified date and a highest account valueachieved as of a specified date following establishment of the annuityaccount; and if the amount of the withdrawal is greater than thespecified withdrawal rate, up to and including the entire account value,there is no guarantee that amounts up to the specified withdrawal ratewill continue to be paid for that specified time period.
 2. The methodof claim 1, wherein said specified time period is a lifetime period. 3.The method of claim 1, wherein said specified time period is a periodindependent of the lifetime of the account owner.
 4. The method of claim1, wherein said specified time period is a period during whichwithdrawals at least equal one of a specified percentage of the accountvalue as of a specified date, and a specified percentage of a highestaccount value achieved as of a specified date following establishment ofthe annuity account.
 5. The method of claim 1, wherein said guaranteeprovides for a return to the account owner of a specified percentage ofthe account value as of a specified date.
 6. The method of claim 1,wherein said step of inputting data includes inputting data relating toat least one of an attained age of the account owner and a gender of theaccount owner.
 7. The method of claim 1, wherein a maximum amount ofsaid withdrawal permitted under the guarantee for the given withdrawalfrequency is determined by multiplying said specified withdrawal rateand the account value as of a specified date.
 8. The method of claim 1,wherein a maximum amount of said withdrawals permitted under theguarantee for the given withdrawal frequency is determined bymultiplying said specified withdrawal rate and a highest account valueachieved as of specified date following establishment of the annuityaccount.
 9. The method of claim 1, wherein a maximum amount of saidwithdrawals permitted under the guarantee is periodically re-determined.10. The method of claim 1, wherein upon death of the account owner, theaccount value, if any, is paid to a designated account beneficiary. 11.The method of claim 1, wherein upon the death of the account owner, aspecified percentage of the initial account value is paid to adesignated account beneficiary.
 12. The method of claim 1, wherein uponthe death of the account owner, a specified percentage of the accountvalue, if any, as determined on a specified date following establishmentof the annuity account, is paid to a designated account beneficiary. 13.The method of claim 1, wherein upon the death of the account owner, aspecified percentage of the initial account value, less withdrawals, ispaid to a designated account beneficiary.
 14. The method of claim 1,further comprising the step of altering the terms of the guarantee ifsaid withdrawals exceed the specified withdrawal rate.
 15. The method ofclaim 1, further comprising the step of establishing a charge to pay forthe guarantee.
 16. The method of claim 15, wherein the step ofestablishing a charge to pay for the guarantee comprises assessing aperiodic fee and deducting the fee from the account value.
 17. Themethod of claim 15, wherein the step of establishing a charge to pay forthe guarantee comprises adding an increment to an asset charge.
 18. Themethod of claim 1, wherein the account value is periodicallyredetermined, absent additional deposits and excess withdrawals, asfollows:Account Value_(t+1)=(Account Value_(t)−Withdrawal_(t))×(1+i) where:Account Value_(t+1)=Account value at time t+1 Account Value_(t)=Accountvalue at time t Withdrawal_(t)=dollar amount of variable withdrawalbenefit at time t i=actual fund performance during period t to t+1 (as a%).
 19. The method of claim 1, wherein said given withdrawal frequencyis per year.